The Updated Guide on Closing Costs

You’ve found the perfect home – with all the bedrooms you’ll ever need, enough outdoor space to grow tomatoes and peppers for your mouth-watering salsa and a great view from the family room couch. Your pre-approved mortgage says you can afford the property and you’re more than ready to sign the contract.

But wait a moment! Have you set aside enough funds to cover the many closing costs of the sale? Maybe you’ve been diligent in crunching your budget numbers and have already paid the home inspector and set aside the lawyer’s fee. But have you considered the other costs that you need to pay before getting the keys to your new home? 

Land transfer tax

When you buy a property, you must pay a land transfer tax to the provincial government, and sometimes also to the municipality (e.g. Toronto). The amount of the land transfer tax depends on the value of your property and varies greatly by location, especially from province to province.

This tax for most Canadians is based on the purchase price of their property. However, if you buy your home in Alberta or Saskatchewan the land transfer tax is a much smaller cost. For example, the land transfer tax on a $500,000 home in Toronto is $12,950, split equally between provincial and municipal taxes. In Edmonton, Alberta, the land transfer tax for a $500,000 home with a 20% down payment is only $280 [1]. You can estimate your land transfer tax in Ontario using our Land Transfer Tax calculator.

However, first-time home buyers in Ontario, Prince Edward Island and British Columbia get a break as they’re eligible for land transfer tax rebates. On the $500,000 home in Toronto, first-time buyers would save $8,475.00. It is recommended to check a land transfer tax calculator to figure out how much you can save as a first-time home buyer.

Legal fees

Buying a home is such an intricate legal process that you will need a real estate lawyer to walk you through the complexities and to prepare and submit all the documents on time. In some provinces, such as Ontario and Alberta, it’s mandatory to have a lawyer. Legal fees vary with the amount and difficulty of the work required, but the average cost is around $1000 including tax.

Property appraisal fee  

The mortgage lender usually requires a property appraisal by a professional appraiser to confirm that the selling price of the home is reasonable for the market and to determine how much they’re willing to lend. Your lender may arrange the appraisal themselves and may even pay for it. If they don’t, then you’re responsible for the cost of the appraisal, usually between $300 and $500 depending on location [2]. Always try to negotiate with a lender to waive this charge; they will often waive it to bring you on as a new customer.

Home inspection fee

It is highly recommended that you make your Purchase Offer conditional on a positive home inspection by a professional home inspector. The inspection will catch any hidden problems in the home that could have future consequences or be expensive to repair. This is especially important for a freehold in comparison to a condo apartment since you will be responsible for all future costs of the property. The inspection fee is generally around $500 but it could save you thousands of dollars if not more in repairs than if you discovered the home’s flaws after you’ve signed the contract. Sometimes, you can ask the seller to give the maintenance costs as a credit or discount to the original agreed-upon sale price.

Property survey

Both your mortgage provider and your lawyer require a current property survey certificate on the home, and the cost is typically part of the legal fee. If the certificate doesn’t reflect additions and improvements to the property, and your lawyer isn’t covering the cost, then your real estate agent should negotiate with the other agent as to who will cover the expense of a new certificate. The cost varies by location, type of survey, type of property and geographic and legal complications with the general range being between $350 and $600 [3,4].

Title insurance   

The “title” in title insurance describes your legal ownership of a property and its land. Your lender may ask you to obtain title insurance in case there’s a dispute about such ownership, including whether you own the property or if part of your property is on your neighbour’s land. You can purchase this insurance through your lawyer as a one-time premium that varies depending on the insurance company but is usually around a few hundred dollars [5].

Government registration fees

Your lawyer will pay registration fees when they file official documents on your behalf with various government departments. The registration fees vary by document, by property type, and by region and province. Your lawyer may include these costs in their overall fee or may give you a list of these additional fees when you hire them. The average total for all registration fees is around $200 but you should ask your lawyer for a more accurate estimate.

CMHC mortgage insurance

If you plan to buy a home with a down payment of less than 20%, you must buy CMHC insurance to insure your mortgage in case you default. You can roll the insurance premium into your mortgage but if you live in Manitoba, Québec, Ontario or Saskatchewan you must pay a provincial sales tax on that premium at the HST/PST/GST rate applicable to your province[6]. On a $500,000 home with a 15% down payment, the CMHC insurance premium would be $11,900. 

Non-resident speculation tax (NSRT)

If you’re buying a home in the Greater Golden Horseshoe Region near Toronto and you’re not a citizen or permanent resident of Canada, then the non-resident speculation tax (NRST) kicks in. This tax is equal to 15% of the value of the property. You can obtain a full rebate of the NRST if you stay in Canada by becoming a permanent resident within four years of purchase; or by enrolling full-time as an international student for two years after purchase; or working as a foreign national in Ontario for one year after purchase [7]. If you are not a permanent resident or citizen of Canada, a $500,000 house would cost you an NRST of $75,000.

A similar 15% foreign-buyers tax is also applied to foreign buyers in British Columbia [8]. 

Estoppel certificate fee

You will need an Estoppel certificate if you are buying a condominium or condo apartment. The certificate comes with the financial statements of the condo board and outlines all the common fees for your unit and the services you will receive in return. It also lays out all the penalties for any infractions of the condo rules. The Estoppel certificate usually costs around $100.

Some closing costs are difficult to estimate as they depend greatly on your location and particular circumstances. We’ve included them below here so you can estimate them for yourself.

HST/GST on New Construction Housing

You have to pay HST/GST on the property value if you are buying a newly constructed home or a substantially renovated home in which 90% or more of the home is rebuilt [9]. However, the posted price of the property may already include this tax or the seller might pay it for you. The Federal government may also rebate you the GST or part of the Federal portion of the HST. If your new home is in Ontario or British Columbia, your province may also rebate you the provincial portion of the HST [10].

Interest adjustments

If your closing date is not the same day your first mortgage payment is due, you will owe additional interest for the days where your lender has lent you your mortgage but you have not made a payment yet. The amount of the interest depends on your mortgage terms and the number of days you need to cover. This is often paid on the closing date, but can also be added to your mortgage payments. Your lender or lawyer can give you the details.

Property tax adjustments

If you’re buying a resale home, sometimes the seller has already paid that year’s property tax. Because you’ll be the one owning the property for some of that time, you need to reimburse them for the days after your closing. It’s a simple calculation of the number of days left in the year after your closing over the number of days in the year (365) multiplied by the annual tax bill for that year. 

The bottom line

Unless you’re ready for them, all the closing costs can be a shock just when you’re ready to sign on the dotted line. Most people’s closing costs come in at 2-4% of the property’s purchase price, so be safe and check your closing costs in advance. 

Sources

1. “The Alberta Land Transfer Tax does not Exist”. Ratehub.ca

2. “Closing Costs”. Bank of Montreal.

3. “Closing Costs”. Royal Bank.

4. “How Much does it Cost to Hire a Land Surveyor?”. HomeAdvisor

5. “Understanding Title Insurance”. Financial Services Commission of Ontario.

6. “What is CMHC Mortgage Loan Insurance?”. Canada Mortgage and Housing Corporation.

7. “Non-Resident Speculation Tax”. Ontario Ministry of Finance.

8. “https://en.wikipedia.org/wiki/Bill_28_(British_Columbia)” Bill 28 Wikipedia page

9. “What Closing and Other Costs do you pay when Buying a Home?”. CIBC

10. “GST/HST” New Housing Rebates”. Government of Canada.

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1 Response

  1. vurtilopmer says:

    Great post and straight to the point. I am not sure if this is truly the best place to ask but do you folks have any ideea where to hire some professional writers? Thanks 🙂

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